Friday, June 25, 2010

My buddy Craig (from DC Tea Party fame) sent me this little 'one on one' the governor did with Neil Cavuto. He said it was enough to make him sort of begin to consider thinking about relocating TO New Jersey.

Thanks to the government regulators and their media enablers completely misrepresenting the issue, most people don’t understand where exotic derivatives come from, so let me explain it to you. When the government makes a rule which violates the economic realities of the free market, the incentive to create a new kind of derivative is born.

Free market economics has internal rules which if left alone, will moderate virtually all of its own potential excesses. These rules are so basic that most people wouldn’t think of them as economics at all. They are things like “the law of supply and demand” or “the law of diminishing returns”. These are the internal moderations of the free market. Like the rules of nature, they are all independently self correcting. There is no point where the law of supply and demand forms a bubble or the law of diminishing returns provides a perverse incentive to throw money around needlessly.

But the problem in the real world is that the free market hasn’t been left alone. Instead, governments have decided that rather than coping with the real world as it is, they would rather mess with the market until it gives them a result that they want for political reasons. As an example, unions represent voting blocks, so they’re given enormous legal advantages by elected officials who also write such rules. Ordinarily labor cost is determined in broad terms by the economic value added of the job. But when the union gets it's legal advantages it begins to distort things. It artificially causes the price of labor to rise without any other justification. This makes things more expensive for the company and in turn makes it more like that they move their manufacturing overseas. Now the union staffers are unemployed.

The same sort of thing is true in finance.

It’s a little arcane to offer an example for derivatives in this format and it wouldn’t read nearly as well. I can provide specifics if pressed. But if you can take my word for it then I assure you, every single derivative that’s been developed in the last 40 years – from interest rate swaps on down – has been created in response to an arbitrary change in the legal, regulatory or tax codes. The instinct to make the world bend to political will is what has created the derivatives marketplace, not greed. (Which is what the people who are trying to bend the world would have you believe.)

People in government believe in control. They believe they can make a decision and the world will change to conform to their view of how things should be rather than how they really are. It’s never been true, but since the advent of computers in finance, that idea has gone from tragic to farce. There has, in my opinion, never been so great a gap between the people writing the rules (the dim and misguided) and the people trying to get around them (the clever and motivated). Imagine how things would look at NASA if when he created it, Lyndon Johnson had decided to put ladybird’s cousin with downs syndrome in charge of the whole thing. That’s how the financial markets look to many people today.

Moon shots would still get done, and shuttles and satellites would be launched, but much of the time it would be in contradiction to, and over the specific objections of the ‘person in charge’. The interest of that person won’t have anything to do with space exploration much of the time anyway. Rules would come down from management like ‘On Tuesday everyone must wear a ‘blue shirt’, or “We all have to smile when we say hello.” In response to all this, the PhD’s and engineers would all nod and smile at each other, then get on with the actual business at hand.

The culture that would develop would be one where the people who are the most respected and the most rewarded would be those who can best find the blind spots of ‘management’, and succeed in getting things accomplished in spite of the rules. In effect it would be a culture where the ‘gray’ area becomes the most important. If you don’t work on Wall Street you’re probably aghast at reading that characterization, but if you do work here, then you’re probably nodding knowingly right now like one of those PhDs.

I figure that right now someone out there is trying to come up with an analogy between Apollo 13 and the financial crisis, but the analogy doesn’t hold. The incentives that created the crisis of 08 were in place long before the actual event, and the bail out was long implied. but for Fannie and freddie and the pressure to increase home ownership rates, the whole thing would have never happened.

And if we had followed the rules of the free market afterward, all the banks would have been folded up for repurchase by smaller banks that hadn’t been caught in the asset bubble. The new management would fire the people responsible (rather than holding witch hunt congressional committee meetings with the people who weren’t) and life would have gone on as before. the main difference would have been that without the people in charge promising to punish the winners and help the losers, the markets could have had the confidence to come roaring back instead of trickling as they have. Unemployment by now would have been lower and the economy would have been better. But instead we got more ‘control’ from the top.

But I'm not saying that markets don't need rules; of course they do. But they need rules like language need rules. They should be rules designed to better reveal the truth rather than try to ‘control’ or obscure it. In fact, if the regulators simply make the data which facilitates short selling more transparent, the very idea of an asset ‘bubble’ may be ended for good.* But in this political climate, that’s the last thing we’ll see. Instead we’ll get more attempts from our mentally challenged rulers to ‘control’ the markets, and the market will respond to them by going further to get around those rules. We on Wall Street will continue to manage risk and to provide products and services that make economic and financial sense, no matter how convoluted the rules get. Ban activity and you simply drive it offshore or obscure it behind the next class of ‘exotic instruments’.

Over the long term, Government can’t control the markets any more than they can control nature. The best shot they have at control is to set all we snarling greedy wolves in opposition to each other like the checks and balances of old. It’s the only kind of control the markets will ever really respect. The sooner we get that idea through to the mentally challenged people in government, the better off we’ll all be. But if recent demonstrations of their intellect are any indication, they probably wouldn’t understand it anyway.

* The term 'financial bubble' is widely misused, and I do the same here. Information cascades (their technical name) will always exist at high frequency but making short selling easier will keep them from expanding to a size where anyone cares.

Thursday, June 24, 2010

Ben Bernanke, student of the great depression, is convinced like most monetarists that it was caused primarily by a contraction in the money supply. Several things contributed to that contraction, Smoot-Hawley tariffs etc. But if you have to point to a single cause, monetarists are firmly (and reasonably) convinced that money supply was it.

With that in mind you can imagine Ben Bernanke with a huge plunger, trying to force a fluid though a blocked pipe. As he adds pressure at his end, the risk to the whole system increases so long as nothing happens at the other end. That’s the case now. We’ve had zero interest rates for some time which has increased the pressure. But because of liabilities that are certain to increase (like new taxes and new regulation compliance costs) and political risks where the rules for the future themselves are unknown, (like the Employee Forced Choice Act, and some kind of carbon tax scheme) the people who’ve been receiving the money from the fed have simply been sitting on it rather than lending it as they would if this were a ‘normal time’.

Europe is contracting, US housing is pointing to a double dip, and unemployment continues to be higher than Obama would like, aprticuarly with 400,000 census workers to be laid off in September. So what will the Fed do now? QE2 (more quantitative easing) is the talk in some circles and with good reason I think. Especially when you consider team Obama’s reaction to what looked like the failure of their health care bill. In the face of what seemed like certain electoral failure they doubled down and used an obscure procedural process to pass a bill which was wildly unpopular with the voters, but that could still be spun as a victory by them at election time.

In effect they burned their ships and committed themselves, come what may, to piecemeal nationalization of the healthcare industry. That’s the political wind that’s blowing from Pennsylvania Avenue. That’s how they think this game should be played. And right now, coming into an election, not only is the president’s political party looking to take a pummeling, but the one economic statistic that all US politicians understand, unemployment, looks to be rising rather than falling. Obama is unlikely to take this lying down.

The financial reform bill the Democrats are pushing will be so detrimental to the capital formation process that it will negate much of what the Fed has tried to accomplish. It will take what has been a temporary blockage of the monetary policy pipes and make it permanent. The financial community understands this but congress doesn’t. Bernanke understands it too. That’s why I think that bill will free up Ben Bernanke to take ‘extraordinary measures’ without fear of inflationary consequences. As a student of the depression I think he fears inflation far less than deflation. So I believe this bill makes it certain that he’ll take further measures. And once ‘what to do’ is decided, the primary consideration for everyone involved becomes ‘when’.

That’s where pressure form the Whitehouse will come in. They don’t understand economics, but they understand elections, and the way they’re effected by unemployment. I think Bernanke will be pressure to begin taking further monetary measures in the next 30 to 60 days.

Wednesday, June 23, 2010

It's easy really - like all market based solutions are. It only requires one simple policy change and the law to support it. In essence it's this: Once a federal emergency is declared, if you scoop it, you own it. At $80 bucks a barrel that not only creates a potentially profitable industry, but will clean the oil up far faster than any bureaucratically driven solution.

In a few weeks an army (ok ... a Navy) of unemployed fishermen will swarm on that oil spill using all sorts of innovative methods to clean up the oil and sell it back to the oil companies. They can all make a living until the oil is cleaned up, and once it is, they can go back to shrimp.

Apart from the union's stranglehold on the federal government and the administration's natural distrust of the idea of 'free markets', I don't know why no one is suggesting it. More to the point, why isn't someone on the right suggesting it? I'm pretty sure there are already high seas salvage laws in place that could provide a framework for something like this.

Lets' suppose for a moment that your job was to use George Soros's platinum card to pay his expenses. Included in that would of course be some flexibility to manage your own costs as well. You deliver a budget every year which explains to Mr. Soros how you'll spend his money, but you aren't required to. Every year he chafes a bit at the increasingly large numbers, but he accepts it because he has no choice. And since you aren't required to produce the budget for him it's really his only guide of what to expect for his expenses in the coming year.

What circumstance do you think it would signal if after having produced budgets every year in the past, this year you've decided not to? What message about future spending should Mr. Soros get from that turn of events?

Friday, June 18, 2010

A while back I said that one day the liberal press would turn on Obama and from then on he would be known as the Jimmy Carter of the 21st century. Well apparently today is that day. The liberal media doesn't get any more liberal than Der Speigel, who today is saying:

My buddy Jose is at the world cup in South Africa with his father and brother right now. In fact, his beloved Uruguayan team made big news globally by beating the South African's a few days ago. This was no doubt a moving moment for him.

I'm still 'Home Alone' and I'm therefore far too busy 'single parenting' to stay up on the world cup, but to honor my buddy and his Uruguayan countrymen, I thought I'd post this comment from Adolf Hitler.

Thursday, June 17, 2010

What oh what is a savior to do? You kick some A$$es, you put your boot on a few necks, you rewrite the rules of banking, medicine, energy and insurance almost every day and those greedy businessmen refuse to hire people like you want them to. Don’t they understand that the game has changed? Don’t they get it that they had better start obeying and doing what they’re told or they’ll end up like GM, or Goldman, or BP? And right now what they’re being told to do is start hiring people…. whether they need them or not… whether it’s a good idea or not. Washington has spoken… start hiring or else.

But apparently business leaders just aren’t listening. The jobless number was awful, and the Chicago gang that has taken over Washington is running out of options. They’ve throw billions of dollars at keeping their base employed… there are precious few unionized civil servants that have been laid off. But there is an election coming, and the private sector hasn’t been following along. They’re going to have to do something else to keep all those assistant deputy directors at the HHS and the other bureau’s employed. Those are the ‘important’ people because they’re the ones who will vote correctly.

The money has to come from somewhere. So they'll do what they have to.

Wednesday, June 16, 2010

When I was living in Westchester and thinking of relocating to Connecticut because of my $30,000 per year property taxes, my brother convinced me to move to NJ by convincing me that it was going to become a Red State. I think this proves him right.

Tuesday, June 15, 2010

On the contrary... I personally think he’s the most important public voice in America at the moment. He keeps a live phone on his stage so the Whitehouse can call and correct the facts he raises (they never do). He fills his in studio audience with groups that we’re told don’t actually exist: Spanish speaking immigrants who want the border closed; women against abortion; black conservatives. According to the liberal media, his home audience is supposedly made up of nothing but a few illiterate rednecks and paranoiacs. But his ratings are in the stratosphere in his time zone and when he did a program on the “The Road To Serfdom”, it became the most purchased book on amazon.com.

He’ll tell you himself that he is possessed of an unremarkable intelligence, yet I see him consistently managing to get most big questions absolutely right. And I confess that I’ve been completely fascinated by this phenomenon. I’ve never understood how someone can get things so right and not do it more or less the way that I have. Start with the basics: supply and demand – all men created equal – shall not be infringed etc- and work up from there. But he doesn’t do that. He venerates the constitution of course, and he respects and fully embraces free markets, but he goes from logical step #1 to logical step #30 and that leaves some gaps in his thinking.

The funny part is, when he goes back to fill in those gaps he almost always gets those right too. It’s a rare thing when he’s completely off the mark. The one area where I think my view and his diverge is that he believes what we’re seeing now is the result of careful planning and orchestrated behavior by liberals where I simply don’t. He thinks liberals are acting according to a plan, while I don’t give them that much credit. I think they’ve all made a single philosophical mistake that's driving all of them off the same cliff.

Really I think my difference with Glenn Beck's worldview is one of projection (which both he and I and everyone else is almost always guilty of) and experience. Beck is a bright guy but no outlier. He looks at guys like David Axelrod and Barak Obama and decides that they’re terribly bright guys; while to me they looks like just another pair of dim academics hobbled by their childish philosophy. We agree that their policies will do harm to America, but we differ on how that’s come to be.

I think the damage they do will be mostly well intentioned and accidental, while Beck sees what they’re doing and says “they can’t possibly be so stupid as to be doing this by accident!” My only response to this is… “Yes, they most certainly can”. Our universities are filled with liberals who are utterly convinced that they are right even thought their ideas have failed completely, every single time they’ve been tried. There are still devoted Marxists stuffing the halls of power among the education and media elite, even though Marxism has already been shown to fail completely and utterly.

But the core of their error is that they despise any political system that doesn’t put someone like them at the top. And they believe it should be that way in spite of their lack of actual achievement. To them capitalism can’t be fair because any “fair” system would be one that placed them in charge. Their world view is just a child’s fantasy about growing up to be king, only they’ve taken it to the next step and now they're all trying to reshape the actual world to match that tragically flawed theory. I think desperation for success without achievement is more than enough to lead them all to come to the same incorrect conclusions about the world even without a conspiracy.

Beck on the other hand doesn’t see them as stupid and infantile like I do. He still sees that same failure of logic and how it leads them to agree not only on a goal but also on a process. And since that process will involve eliminating the freedom of a great many people, he imagines, quite rightly, that a conspiracy would achieve the same effect. To be honest, I’m not sure he isn’t correct at some level. I’m sure there are agreements in place to carefully spin the news, minimize the influence, manage the perception, and to generally talk down the dark side of things. But I don’t think it meets the threshold of actually being a conspiracy. With so many people out there who are wrong in exactly the same way, I don’t’ think it needs to.

He sees evil geniuses, while I think the best and most useful among them are still just useful idiots. He’s sees intention, while I see only misguided error. Well, not only. There are people at the top who I think are interested in power and simply don’t care what damage they do. They’re leading mobs of people who are detached from reality and have no idea that the policies they’re advocating will hurt America, and in the end, themselves. But that describes 90% of the people in government from both parties if you ask me. So I’m less likely to point fingers and name names.

In fact, I think that’s what Beck mostly thinks too. The fact is, it’s just the media myth of Glenn Beck that is a raving lunatic. As is usually the case it’s the spoof that liberals have created out of fear of his rapidly increasing influence that has them so worked up. He’s not really crazy at all. He has gaps in his knowledge, but so does everyone. And if you believe the truth will out, then I’d be betting on Glenn Beck’s view of the world way before I bet on Barak Obama’s.

They say you only take flak when you’re over the target, and no one is taking flak like Glenn Beck. I’d say that tells you all you need to know about the man. He’s not crazy at all. He’s just making all the right enemies, and they want you to think of him that way. I think he’s far more right than wrong, but as he would probably tell you… better to listen to the man, and then make a decision for yourself.

Monday, June 14, 2010

A few weeks ago one of my neighbors accidentally locked himself out of the house with his dinner on the stove. He's a mid 50's man with a bit of a bulge and wasn't going to be climbing in any second story windows, so instead he called the police. What followed was astounding.

In 20 minutes there were 5 police cars, 8 policemen (along with a canine unit that did a drive by) and not one but 2 complete engine companies of firemen to deal with this emergency. One of them eventually broke a window in the back, climbed in, and unlocked the back door before turning the flames down on my neighbor's stove.

This is the kind of reaction you see in sleepy, upper middle class ex-burban town with a crime rate that is basically zero. It's not just that all of these people are bored, they also need to justify their existence to the taxpayers. They need to have logs of all the vital work they've done, and this added one more item. The monthly police blotter for my local paper is so small, they only publish it once per quarter. And that doesn't justify a lot of civil servants.

Don't get me wrong, I have friends who are policemen and firemen, and I value their work. I even have a teacher or two that I like. But like all things in government the chart only goes one way. The only thing you ever end up with is too many civil servants, never too few. And there is no incentive in place to cut them when the civil service has expanded to excess.

Obama will get the additional 50 Billion he wants to pi$$ away, and it will all go to reward the least productive portions of the civil service - those bureaucrats that we can most easily do without. but that's the way it works in Obama-land. Those of us adding to the GDP are considered part of the problem, and those 'fairness consultants' in the civil service are the people who really count.

Sunday, June 13, 2010

Dianne Gooch's primary skill seems to be in marrying well. The photogenic Rumson millionaire was the anointed Republican candidate for my local congressional district, but since the primary there is a little wrench in the works. That wrench is Highlands mayor Anna Little, who wore the moniker 'Tea Party Approved' and who managed to eak out a razor thin 80 vote victory over Gooch, in spite of the fact that the all powerful Republican machine had already thrown their support behind her.

This unexpected turn triggered all the usual nonsense about recounts and declarations of 'voting irregularities' from Gooch's supporters. But while that sort of thing is common in places like Elizabeth or Jersey City, it's unlikely in the extreme that there were any real voter problems in the Republican primary of my upscale NJ suburb. What's more likely is that the Republican machine decided that they would rather have a charismatic and attractive candidate than someone who was actually saying what the people wanted to hear, and they're crying over the result not coming out how they expected.

I don't know Little. She may be nothing more than another lawyer with no character just like everyone else in congress. But the bar would have to go pretty low before she'd be worse for NJ than Frank Pallone, the 6th district's current congressman. Pallone has been the very model of a 'tax and spend', 'shut up and do what we tell you' liberal. Judging by how he acted during the town hall dust ups, he apparently believes that we idiot taxpayers should keep our opinions to ourselves and simply obey our betters when they tell us how to live our lives. He makes Obama look humble and self deprecating.

The local Republican 'leadership' (and I use that word with as much sarcasm as I can muster) should quit crying and support Little as well. she may not be as pretty as Gooch, but she seems more substantial to me, and that will go over well this election cycle. Unseating Pallone isn't going to be an easy trick, and that's the prize you should keep your eyes on.

Wednesday, June 9, 2010

The short answer to why Obama can't seem to create any new jobs (other than temporary census work) is obvious. He doesn't have any idea how. The simple fact is, community organizing doesn't add anything to the GDP, and apart from throwing some government cash to sign makers and bullhorn retailers, no new business will come from it. This is what happens when the government 'spreads the wealth around'. It takes the wealth from people who know what to do with it, and gives it to people who don't.

Here's the issue that I think will define 2010 both politically and economically. 95% of the jobs in the June employment statistic came from government hired census workers; the private sector hasn't done any hiring at all to speak of. My bet, given all the uncertainty the administration is creating in the regulatory environment, is that the trend will continue. And that means that in September, when we get the last monthly unemployment number that the electorate will have a chance to react to before the election, all those jobs will roll off. This is a worst case scenario for the Obama administration.

If it goes this way, the community organizer in chief will be facing an unemployment rate that's rising pretty dramatically immediately before a mid-term election. And his tools for coping with it will be greatly diminished. The American people are already on to the true nature of his 'stimulus' bills, so he won't be able to spend anymore. Instead, what he will do is pressure the Fed and Treasury to come up with a way to monetize debt and create more liquidity in the hope that it will spur economic activity. It will work too - inflation always does. But while it might be good for team Obama politically, that isn't to say it will be good for the country as a whole.

Obama says he wants to help small business... but the truth is, he doesn't know how to do that either. And every time he tries to target a government benefit to a specific group, the net effect is that it either helps the wrong people, or does nothing at all. The latter is most likely. Small business people will not respond to a directed government benefit because they know that if the government giveth, it can just as easily take away. And you can't build a business on politics.

He could cut business taxes and that would create real growth - much of it for small businesses. But something like that is contrary to his instinct and the demands of his base. His base insists that he punish the rich, the banks, the oil companies, the medical companies, and anyone else with the audacity to take a risk. They are worried about sentiment and intent not results, and his rhetoric is proof that he's listening to him. So instead of new jobs we're getting boots on the neck and butt kickings. Such is the way of things when you put a doctrinaire leftist in charge.

Eventually, the administration will manage to create inflation and that will create additional economic activity. But it's the only thing coming from Washington right now that will.

Monday, June 7, 2010

I have a lot more to say on this Helen Thomas incident, but I can't do it this AM. The wife is in Florida taking care her dad, and I'm doing the single dad thing again so I'm busier than normal. I promise I'll get back to it today.

Only 40K private sector jobs created, and the markets are horrified. This means that if it weren't for the census workers we would have had a big negative employment number this month and the unemployment rate would be higher. The president just said the exact opposite in a speech, but it's no shocker to hear a politician lie so specifically about the facts... especially this one, who understands so little about how any of this stuff works. I'd have been more surprised if he told the truth about it.

The truth is, that's an unfortunate data point, and we haven't seen anything like that in recent past recessions so how could that be happening this time?

Well we have an administration which has simultaneously declared war on the finance, medical, and energy industries, and has artificially propped up the auto industry. If you didn't foresee unfortunate outcomes as in BP, you'll be charged criminally by the attorney general. If you did foresee those outcomes and profited by them you'll be sued by the regulators as in Goldman Sachs.

Succeeding is considered wrong, as is failing. The only thing that is apparently considered right is having tons of political capital and a deeply embedded labor union. So if that's your business model then go ahead and hire big (provided you can find a way to pay you for all that hiring).

Thursday, June 3, 2010

Now that I see the kind of man you are I'm probably your biggest fan. I love what you're doing and I even love how you're doing it. But the fact is, if you don't do something about NJ's excessively narrow tax base, then it will take the unions about an hour after you leave office to have everything right back the way they want it.

I have ideas about this, but none which I would consider politically feasible in NJ. My favorite tax idea was the one Milton Friedman proposed of a 'reverse income tax'. If you have an income over X, you pay a flat percentage of that as a tax. The tax form then has just three lines... How much did you make? How much is X percent of that? Sign here. If you make less than that number, and the legislature can decide what that number is, then you get a check to bring your income up to that level.

Like I said, I don't know if broadening the tax base in NJ is politically possible, but I know it's essential. Besides, you seem to make your living these days by doing things in Trenton which no one believed were possible, so I figured I'd toss it out there.

OK … let’s make sure I’ve got this straight. The US bans offshore drilling in basically all shallow water because liberals don’t like to look at platforms while they’re sunbathing. This puts much of America’s deposits off limits, increasing prices and making it economical to drill in deep water. Which in turn means that if we want the oil (and we still do) and we’d rather not buy it from countries that are working toward our destruction (and we still don’t) then that’s where we have to go get it.

But drilling in deep water is a very complicated thing involving cutting edge technology. The temperatures and pressures are so enormous and even military submarines can’t take it down there. And all that complexity means greater than average risks. Risk is one of those things that doesn’t mean anything to you when things go right, but can wipe you out when things have gone wrong. I think it's safe to say that this is where deep water drilling is right now.

The risks of shallow water drilling in comparison aren’t any big deal. If you have an accident, you send a bunch of divers down there with some welding gear and the problem is solved. (My cousin actually does that very thing for a living.) But again… liberal sunbathers don’t like shallow water drilling rigs, so in a sense, the risks of deep water drilling have become mandatory thanks to government regulation of shallow water drilling, and the desire of Americans to pay less than $7.50 a gallon for gasoline, like they do in Europe.

So now we’ve had a deep water accident, and it’s turning out that BP hadn’t mitigated their risks as well as they thought they did. That’s often the case when you’re doing something very few people have ever done before, and deep water drilling certainly qualifies. Whatever the progress being made at the moment, I don’t think it’s any stretch to say that BP is as disappointed with the way things have gone as anyone else. With their equity price going over the waterfall and the public outcry stopping one step short of mobs with torches, anyone who isn’t an imbecile would agree that they are certainly motivated to solve this problem as soon as is humanly possible.

Enter the aforementioned imbeciles. The Obama administration has looked at the situation and has decided that all deep water drilling should be stopped immediately until the technology can be dumbed down enough for the bureaucrats at the EPA to understand it. Risk is the problem as far as they’ve concerned. And never mind that it’s the very same risk that they made mandatory by preventing drilling in shallow water. But an interesting side note is that since liberal sunbathers have already prevented shallow water drilling, and the risk of deep water drilling has been deemed unacceptable, that leaves us with no source of oil except importing it in tankers, which is actually the most environmentally risky way to get oil.

A great analogy for this is if the Obama administration made flying in jetliners illegal in reaction to a plane crash. That forces people to either drive, or to fly in much smaller planes. Both driving and small planes involve a greater individual risk to life, limb, and the environment than jetliners ever have. So his policy might mitigate the headline grabbing catastrophe, but if the net is 1,000 smaller crisis and the cumulative difference is worse, then what’s the point? As is so common with self congratulatory liberal policies, over the long term, they will achieve the exact opposite of what is intended.

And as if that isn't enough, the Obama administration is now also threatening to bring criminal charges as well. (The truth is, that’s probably just posturing by his ever preening Attorney General Eric Holder, but that they could allow such a counterproductive sound bite says quite a bit about how economically illiterate this administration is.)

Obama has also begun to push for a massive new tax on carbon in order to get the private sector ‘fully invested in the cold and dark green economy”. He says it’s to make oil less popular as a source of energy, but no one seems to think through how that will look to the average American. What will happen when his carbon tax is passed is, no one will be able to afford gasoline, or diesel, or heating oil, or the fruit and vegetables or meat or bread which are all transported by diesel truck and will carry the new expense, or the electricity produced (mostly) by coal, or any of the domestically manufactured products which require cheap energy to produce. All those costs will be passed to the consumer, and the result will be that everyone’s lives will be made much much worse. He could surrender our forces in the gulf to the Iranians and it would do less to harm the American people.

I’m not saying BP has handled this whole thing well. Frankly I wouldn’t know one way or the other. That involves specific data that I’m not privy to and wouldn’t know how to assess if I was. But I do know that if the chairman of BP could wave a magic wand and solve this whole problem, the problem would be solved. They are as motivated as can be by the market, not by the government. And those incentives were in place long before Obama interrupted his golf game to pick tar balls off the beach.

And although I don’t mean to minimize it, it’s not like this catastrophe won’t have some upsides. Accidents are inevitable, so learning to deal with them is a part of any sound business practice. As such, the technology for cleaning up these accidents is getting a ton of attention. So long as we keep the government out of the decision making process and let the market pick the winners and losers, we should be much better at cleaning up the next accident than this one. We’ll get an effective and cheap method for cleaning up future spills, which will still be inevitable no matter how many new regulations we get.

But that market provided solution probably won’t be how it works in Obama-land. They don’t like that sort of thing, and prefer those solutions dictated from Washington. Some politician will want his favored cleanup solution to get a federal subsidy even though it doesn’t work as well as another, or the unions will want one solution favored over another. Even Obama himself will probably prefer whichever one comes from ‘the right people’. Look for his cronies is Chicago to benefit wildly from all this… and Glenn Beck will probably be the only guy reporting it.

When you mix politics and business, all you get is a bigger mess.

If the BP spill can teach us one thing that should probably be it. But these days the public view seems to be “government = good, private enterprise = bad”, so my bet is that we’ll miss it. Instead of innovation and fleet footed responses to crises driven by self motivated private enterprise, we’ll get plodding bureaucrats and least common denominator regulators that threaten to throw someone in jail as if every accident was actually intentional. The result will be an oil industry that is less safe, less clean, and less able to respond to opportunities and emergencies both. The lawyers and plodding bureaucrats will be calling the shots, and that’s just the way the lawyers and plodding bureaucrats in Washington like it.

This is interesting. In my industry this is a well known phenomenon. The theory is that if you've been fired by someone else then there must be a reason, even if they don't know what that reason is.

Now that has apparently overflowed into other industries. Maybe the thinking is that the 'go getters' all stayed employed, so you're willing to pay a premium for them. I doubt this is the last we'll see of this kind of phenomenon. I know that if you buy in to the whole 'Obama worldview' where someone else is responsible for you rather than being responsible for yourself, then you are certainly someone I wouldn't want to hire.

Wednesday, June 2, 2010

This nonsense Obama keeps repeating about making sure "the private sector is fully invested in green technology", is either the most dishonest thing he's ever said, or the most economically illiterate. That's all just code for a MASSIVE new tax on energy that will make everything in the US VASTLY more expensive. In that way it will reduce the living standard of all Americans, and will also INCREASE the unemployment rate.

Whatever the problems in the gulf of Mexico, letting government raise the unemployment rate and lower everyone's living standard is NOT a solution.